Calls for debt panel to ‘go big’ get louder

Calls for the congressional debt reduction supercommittee to “go big” are amping up, as financial and government analysts say the panel’s aim of finding more than $1 trillion in savings may not be enough to steady the nation’s wobbly economy.

A Government Accountability Office report released Monday said the federal government’s fiscal outlook has improved, largely because of a hard-fought deal passed by Congress in early August that raised the debt ceiling and set out to identify ways to trim the debt by at least $2.1 trillion.

But the GAO, Congress‘ independent auditing arm, added that “even this level of deficit reduction is not sufficient to ensure sustainability.”

The agency said that because the aging U.S. population has strained entitlement programs such as Medicare and Social Security, lawmakers must do more to shore up the nation’s long-term budget while also being careful not to further weaken the current economy.

A Bank of America Merrill Lynch report released Friday also predicts the United States likely will suffer another downgrade from a major credit rating agency by the end of this year on concerns over the deficit.

Standard & Poor’s in August dropped the U.S. credit rating from AAA to AA+, questioning the ability of leaders in Washington to seriously deal with the nation’s debt crisis.

“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill Lynch’s North American economist, Ethan Harris, writes in the report.

“Hence, we expect at least one credit downgrade in late November or early December when the supercommittee crashes.”

The bipartisan supercommittee was born out of this summer’s bitter debt ceiling deal, which imposed more than $900 billion in discretionary spending limits for the next decade. As part of the compromise, the deficit panel was tasked to identify by Thanksgiving another $1.5 trillion in savings or new tax revenue. Failure would trigger $1.2 trillion in automatic spending cuts that would affect a wide range of domestic programs and the Pentagon.

The Committee for a Responsible Federal Budget, a bipartisan group that advocates for fiscal responsibility, says in a report released Friday that the deficit panel must find savings “two or three times as much” in order to set the country “on a path to sustainable fiscal growth.”

“Small ideas have no ability to inspire,” said Al Simpson, co-chairman of the CRFB’s Fiscal Commission.

The two big roadblocks facing the supercommittee are how to tackle entitlement and tax reforms. Democrats have resisted significant cuts to Medicare, Medicaid, Social Security and other entitlement programs, while Republicans have been steadfast in their opposition to any tax increases.

A proposal that relied too heavily on either approach would fail to meaningfully address the country’s economic woes, the CRFB says. And politically, a one-sided approach likely wouldn’t pass Congress, where each party controls one chamber.

“If the supercommittee takes an incremental approach of going through the options for savings one at a time to identify areas of agreement, it will be extremely difficult to come to agreement on more than about $800 billion in debt reduction without tackling the biggest problem areas of the budget - entitlements and the tax code,” the CRFB report says.

The supercommittee, which has met mostly in private, will hold a public hearing Wednesday, with Congressional Budget Office Director Doug Elmendorf scheduled to testify.